Who Needs 'Reservations'? Court Rules On Employers Ability To Reduce Who Needs Reservations

In an era where finding efficiencies and cost-cutting are often important tools for business, a question faced by business is how and whether benefits in place for current employees and retirees can be changed.

A recent decision of the Ontario Superior Court, O'Neill v. General Motors of Canada, 2013 ONSC 4654, provides significant guidance to employers on this question.

In the face of severe economic pressures facing its business, the employer, General Motors (GM), sought to reduce the retiree benefits available to its employees. There were three groups of individuals affected by GM's attempted reduction:

Current salaried employees, who were eligible to retire but who had not yet done so; Retired salaried employees; and Retired executive employees. The Court approached the issue from a contractual standpoint, considering the reasonable expectations of both GM and the employees in each class, and examining whether, with respect to each group of employees, GM had contractually "reserved the right" to make changes pursuant to a reservation of rights ("ROR") clause in its contracts. The Court accepted that if GM had made it clear in its contractual documents (such as benefit booklets, benefit summaries and other communications to employees) that it could make changes in future, then it had the right to do so. The Court also made clear, however, that the ability to make changes had to be explicit - clear and unambiguous - and that any ambiguity would be resolved in favour of the employees, since GM was the drafter of the documents.

In looking at the reasonable expectations of the parties, the Court started out by examining the booklets that GM had distributed to the salaried employees over the years, and in particular the representations that GM had made in those booklets. The booklets contained statements that the benefits being provided "should be of interest to your family and a useful tool for your own financial planning", that they "are an important factor in making your life more enjoyable and the future of yourself and your family more secure", and that "basic life insurance will be continued for you for your lifetime", and the Court concluded that these statements were "representations" made by GM that the salaried employees could "rely on a core of health care and life insurance post-retirement benefits that would continue unchanged for the remainder of their life", and that this was a form of deferred compensation and not a gratuitous...